Market won't call Microsoft, Yahoo! deal dead; Schumer backs price cut for BoA; unions pan airline deal

By Aaron Hochman-Zimmerman

New York, May 6 - As stocks began the day underground and managed to be resurrected, investors were similarly not ready for the fat lady to sing the end of the story of Yahoo! Inc. and Microsoft Corp.

Both stocks were up, but not as much as speculation about where each company will go from here.

Elsewhere, Sen. Charles Schumer, D.-N.Y., took the opportunity at a Judiciary Committee hearing to threaten Countrywide Financial Corp. by way of warning Bank of America Corp.

The senator tried to serve up Countrywide at Friedman, Billings and Ramsey's suggested price based on Countrywide's allegedly unfair lending practices.

Meanwhile, Clear Channel Communications Corp. stock slipped as the financing banks threw another filing on the pile of legal documents involved in the deal. This one requests the lawsuit in Texas filed by the private equity team be thrown out.

In the airline sector, stocks fell as the deal between UAL Corp. and U.S. Airways Group Inc. was offered neither a blanket nor a pillow from the flight attendants' unions.

Also, stocks were bumped as ArvinMeritor Inc. announced it would split off its Light Vehicle Systems manufacturing branch into a company called Arvin Innovation Inc.

On the session, the Dow Jones Industrial Average eked higher by 51.29, or 0.40% to close at 13,020.83, while the Nasdaq Composite Index added 19.19, or 0.78%, to finish at 2,483.31.

The S&P 500 was better by 10.77, or 0.77%, to close at 1,418.26.

Yahoo!-Microsoft, gone but not forgotten

Shares of Yahoo! (Nasdaq: YHOO) tacked on $1.35, or 5.54%, to close at $25.72 as market watchers tried either to place blame or at least autopsy the failed Microsoft (Nasdaq: MSFT) deal.

Of course, an autopsy would imply that the deal is actually dead and a gain of 5.54% may show investors' faith that this union can be shocked back to life.

Still, scrutiny will come.

"[Microsoft] chose to walk away after we put a price on the table, and they didn't want to negotiate" Yahoo! chief executive officer Jerry Yang was quoted in the New York Times.

Yang insisted that Yahoo! was - and may still be - willing to sell, but at a fair price.

"What's a fair price?" asked a market analyst, "I don't think we've seen the end of it," he said.

If the deal is really ready for a toe tag, Yahoo!, the little spoon in the abortive deal, must now find somewhere else to hitch its wagon.

The two most frequently mentioned non-Microsoft names, Google Inc. (Nasdaq: GOOG) and Time Warner Inc.'s (NYSE: TWX) aging star AOL, usually receive responses of "anti-trust problem" and "problem company."

"It all depends on what Yahoo! does in the short-term," the analyst said about whether or not Microsoft's return is the most likely outcome.

Shares of Microsoft added $0.62, or 2.13%, to finish the session at $29.70.

Flight attendants show merger the exit

The airlines were served some turbulence by the flight attendants as shares of U.S. Airways (NYSE: LCC) fell $0.29, or 3.49%, to $8.03 while shares of United Airlines (Nasdaq: UAUA) lost $0.85, or 5.67%, to end at $14.15.

The flight attendants' unions of both carriers slammed the management teams surrounding the airline sectors' most recent deal.

"Talk of merging these airlines may be foolhardy. In order for such an inherently risky and complex business transaction to be successful, there must be an underlying rationale and an accord with flight attendants. To date there is no evidence of either," the unions said in a press release.

"In order for any merger to be successful, it will need to have the support of flight attendants. We encourage our respective management teams to first address the problems that have created this adversarial labor environment before contemplating any kind of consolidation scenario," the release continued.

Also, shares of Delta Air Lines Inc. (NYSE: DAL) fell $0.24, or 2.96%, to $7.87 after Ed Bastian, the airline's chief executive officer, told Minnesota's House Commerce Committee that there was nothing that would keep the combined airline's headquarters in the state.

Shares of Northwest Airlines Corp. (NYSE: NWA) lost $0.50, or 5.41%, to end the day at $8.75.

Countrywide 'dangerous' for BofA, says Schumer

In the financial sector, shares of Countrywide (NYSE: CFC) slipped just $0.02, or 0.37%, to $5.34 as senator Schumer warned Bank of America (NYSE: BAC) that it should consider by what methods Countrywide made its money.

If Countrywide made whatever money it has through unscrupulous practices, Bank of America should seek a lower price because "these practices will not be allowed to continue," he said, according to reports.

Bank of America shares were better by $0.27, or 0.69%, to close at $39.24.

"It's a dangerous company for them," a market source said about Countrywide.

Still, "It would be unlikely that other people would come in on this" so "it's very plausible to see a renegotiation in the price," he said.

Others have speculated that the Federal Reserve is poised either to help Bank of America's acquisition, a la JPMorgan Chase & Co.-Bear Stearns Co., or will have to attend to a broken Countrywide left standing at the altar.

"The Fed doesn't need to get into something like this," the market source said.

Clear Channel banks file for summary judgment

Meanwhile in the media sector, shares of Clear Channel (NYSE: CCU) dropped $0.45, or 1.48%, to $29.95 as the banks which are attempting to not finance the leveraged buyout of Clear Channel by Bain Capital and Thomas H. Lee Capital filed to have a lawsuit against them in Bexar County, Texas, thrown out.

The banks filed for summary judgment, a market source said, claiming that the court lacks jurisdiction.

The private equity buyers and their affiliates charge that the banks have made efforts to undermine the deal.

ArvinMeritor to divide and conquer

ArvinMeritor (NYSE: ARM) shares improved by $0.79, or 5.00%, to $16.58 after it announced it would spin off its Light Vehicle Systems division.

CNBC's Jim Cramer called the Troy, Michigan-based automaker "an American comeback story," adding: "I've been recommending that for a very long time."

"The separate companies will offer more attractive and targeted investment opportunities, with incentives for management and employees that are more closely aligned with company performance and shareholder interests," said Chip McClure, ArvinMeritor's chairman, chief executive officer and president in a statement.

The spin-off of the Light Vehicle Systems business will be wholly owned by ArvinMeritor shareholders and will be known as Arvin Innovation.

"Our LVS business group will have the right leadership team, a solid financial structure, market-leading positions in many of its product lines, a well-diversified customer mix and the global reach to grow this new company as a market leader going forward," McClure said.

The spin-off deal is expected to be completed within 12 months.

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